Stocks plunge amid global recovery fears

June 1, 2011

In this May 31, 2011 photo, specialist Philip Finale, left, and trader Thomas Lyden work on the floor of the New York Stock. The euro held on to recent gains Wednesday, June 1, on hopes Greece will get more help with its debts.

The Dow and S&P have seen the biggest drops since August 11, 2010 and are now on pace for a fifth straight week of losses. The Nasdaq saw its worst first day of the month since October 2009. All 10 key S&P 500 sectors dropped, led by financials, materials and industrials.

While the downdraft in the stocks today was sharp, the market remains “very much range-bound,” said Dan McMahon, director of equity trading at Raymond James.

“This is a fairly volatile move the past two days within a range bound market,” McMahon said.

Even though the S&P index broke through the 100-day moving average of 1,317, a level it has held since March, McMahon said the selloff won't mean much unless stocks continue to trade lower, validating the move.

Moody's cut Greece's bond ratings by another notch into junk status. In addition to the increased risk of restructuring, the agency cited "highly uncertain" growth prospects and missed targets in budget reforms.

Financials led the markets lower, with the KBW Bank Index sinking to a six-month low and below its 200-day moving average, following more dismal news on the housing market Tuesday when the S&P/Case-Shiller home price index showed home prices fell to a new recession low in the first quarter.

Banks are exposed to the housing market not only through their loan portfolios, but also through holdings of mortgage-backed securities.

Nokia declined for a second day to a 13-year low after at least eight brokerages cut their price target on the stock. The mobile phone handset maker cut its sales outlookTuesdayand said it expects sales from its products and services to be far worse than initial projections. Research In Motionalso slippedamid worries the Blackberry maker could be in a similar situation.

Juniper plunged after the CEO said the firm may see a negative impact from the Japanese earthquake and added that the company is not immune to reduced federal spending.

Also on the tech front, Yahoo slumped despite news the search-engine company said it resolved a dispute with partner Alibaba Group over the Chinese company's transfer of its prized online payments unit.

On the economic front, the Institute for Supply Management's index of manufacturing fell to 53.5 in May from 60.4 in April, the lowest level since September 2009. Analysts expected the index to fall to 57.7.

Construction spending, meanwhile, rose 0.4 percent in April, the Commerce Department reported. But spending in April was revised down to a 0.1 percent gain from the previously reported 1.4 percent gain. Economists surveyed by Reuters had expected construction spending to rise 0.3 percent.

The weak economic news is prompting analysts to cut their forecasts for April non-farm payrolls, which will be released on Friday. Goldman Sachs cut its forecast to a 100,000 gain from 150,000, while Credit Suisse cut its forecast to 120,000 from 185,000.

Economists surveyed by Reuters had expected payrolls to rise by 180,000 in May, down from a gain of 244,000 in April.

Another report showed the planned layoffs rose 37,135 job cuts last month, up 1.8 percent from April, and up 4.3 percent from a year ago, according to Challenger, Gray & Christmas, an outplacement firm.